November's unemployment report was solid, but not spectacular. The economy added 178,000 jobs and the unemployment rate dropped to 4.6%, a nine-year low. Revisions to October and September were offsetting, with a net loss of 2,000 jobs. The three-month average remained at 176,000 jobs per month and the year-to-date average is 180,000, down from 229,000 in 2015.
Hourly wage growth reversed, dropping 3 cents after having risen 11 cents in October. This lowers the yearly gain from 2.8% as of October to 2.5% as of November. Annual wage growth has been at least 2.5% for the past six months; it continues to outpace inflation, leading to real wage growth. Alternative wage measures also continue to show strong growth. Higher wages typically benefit the retail and industrial sectors.
As we have noted on several occasions, it should not be surprising that job growth has slowed. The JOLTS survey continues to show higher levels of openings than last year, but firms face difficulty finding workers with the skills to meet their needs. Job growth will continue to slow as the labor market tightens due to the longer search times required to find workers with appropriate skills.
The labor force participation rate dropped slightly, from 62.8% to 62.7%. The monthly number is volatile, but the series has remained between 62.4% and 63.0% since August 2013. The employment-to-population ratio remained unchanged at 59.7%.
Employment in business and professional services rose by 63,000 and is up 571,000 for the year. This is beneficial to the office market, since most of these are likely office-based jobs. Healthcare employment rose by 28,000; it has added 407,000 jobs over the past twelve months. Construction also continued its upward trend, adding 19,000 jobs—and 59,000 jobs over the past three months.
The Fed is likely to raise rates at its meeting next week. Recent futures market data rate the probability of an increase at greater than 95%. Over the medium term, we expect job growth to continue to slow during 2017, as the labor market remains tight.